Zacks_Analysts' Blog : Neutral on Xilinx - Analyst Blog

We recently reiterated our Neutral recommendation on Xilinx, Inc. (XLNX) ahead of the company’s third quarter results.

The company is scheduled to report results on January 19, 2012. In December, Xilinx revised its sales guidance for the December quarter. The company now expects sales to decline by 9% - 12%, significantly lower than the previous guidance of a sales decline of 3% to 8% sequentially.

The new guidance implies sales to come between $488.6 million and $505.2 million compared to the previous estimate of $538.5 million and $510.8 million.

The decline in sales was primarily driven by a decrease in large customer business in Communications end market.  The slowdown in China has affected the top-line both for Xilinx and rival Altera Corporation (ALTR).  In addition, weak economic conditions in Europe are likely to hurt the company’s sales.

Xilinx’s advancement in 28nm FPGA (field programmable gate arrays) is being offset by its continued weakness in the wired Communications and Industrial segment revenues.

Xilinx now expects gross margin to be approximately 65%, up from the previous estimate of 64%. However, we expect margins to remain under pressure due to lower yields associated with ramp of new 40nm products.

On a positive note, we expect Xilinx to regain market share on 28nm node at the end of inventory correction due to a faster product rollout and broader offerings. The company should post stronger growth in 2012.

The current Zacks Consensus Estimate for Xilinx is $1.75, down by $0.06 in the last thirty days. Earnings estimates have declined significantly in the last quarter, forcing us to remain on sidelines. 

Hence, we maintain our Neutral recommendation on the stock. Our recommendation is supported by Zacks #3 Rank, which translates into a short-term rating of Hold.